AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2026 (5) TMI 96
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....5 was sent to the assessee which was duly served to the assessee company. Notice u/s 142(1) along with detailed questionnaire dated 13.04.2016 was sent to the assessee. In compliance to various notices issued, Shri Vishal Pandey, CA and Shri Sanjeev Jain, CA, authorized representatives of the assessee company attended the assessment proceedings from time to time and filed replies/details as called for during the course of assessment proceedings. 2.1 The assessee company is a wholly owned subsidiary of Microsoft Corporation, USA and is engaged in providing marketing support services to its associated enterprises in respect of sale of Microsoft software in India. The assessee company also provides certain service to independent customers in India being (i) consultancy services in supporting the development of client server applications; (ii) assist customers in the successful development of Microsoft technology, both directly and through service providers; and (iii) provide training through authorized training centers to assist customers in the operation of Microsoft software. 2.3 The AO noted that during the year, the assessee had debited an amount of Rs. 352,79,66,392/- in P&....
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....etation of the contractual agreements, which is contradicted by other clauses and a long-standing line of judicial pronouncements. The foundational principle for determining whether an expenditure is revenue or capital is the "enduring benefit" test, as articulated by the Hon'ble Supreme Court. However, as established in the case of CIT vs. Monto Motors Ltd. [2012] (19 taxmann.com) 57 (Delhi), the impact of advertising and sales promotion, particularly for consumer products in a competitive market, is short-lived. Such expenses are a continuous and recurring necessity to maintain and attract customers, and their benefit is momentary, not enduring. They are part of the profit-earning process, not the capital structure of the business. The AO's claim that a "corporeal asset" has been created is factually incorrect and not substantiated by any evidence. The AO's selective reliance on the intercompany agreements is also without merit. The appellant's submission correctly identifies a specific clause (4.1.4) in the License Agreement that explicitly disavows the notion that the AMP expenses constitute "brand building." The AO failed to consider this clau....
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....ent, publicity and sales promotion expenses as Capital Expenditure ignoring the fact that such expenses were incurred though in an accounting year, but yields benefits for several years and therefore, the entire AMP expenditure incurred by the assessee during the relevant AY cannot be considered as expended wholly and exclusively for the purpose of the business of the assessee transacted during the relevant accounting year?" 5. At the outset, the Ld. AR supported the order of the Ld. CIT(A) and submitted that this was a covered matter in favour of the assessee by the order dated 01.08.2022 in ITA No.- 802/Del/2021 for A.Y. 2016-17 and further by its common order dated 09.06.2024 in ITA No.- 3616/Del/2023 and ITA No. 3671/Del/2023 for A.Y. 2015- 16 in assessee's own case. 6. On the other hand, the Ld. Sr. DR supported the order of the AO and the grounds of appeal filed by the assessee. 7. We have heard both the parties and perused the material available on record. Similar issue came in assessee's own case for A.Y. 2016-17 wherein the co-ordinate Bench of the Tribunal in ITA No.- 802/Del/2021 deleted the addition made by the AO and confirmed by the Ld. CIT(A). The relevant g....
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.... facts and in the circumstances in the case, the Ld. CIT(A) was right in deleting the addition of Rs. 165,18,15,000/- made on account of treating 50% of advertisement, publicity and sales promotion expenses as Capital Expenditure ignoring the fact that such expenses were incurred though in an accounting year, but yields benefits for several years and therefore, the entire AMP expenditure incurred by the assessee during the relevant AY cannot be considered as expended wholly and exclusively for the purpose of the business of the assessee transacted during the relevant accounting year?" 6. Heard and perused the record. The Id. AR submitted that the issue involved in the appeal of the Revenue is covered in favour of the assessee in assessee's own case for AY 2016-17 in ITA No.802/Del/2021 vide order dated 01.08.2022. The relevant observation of the Tribunal at para 6 of the said order read as under:- "6. We find that the determination of ALP or the capitalization of 50% of advertising expenses on ad-hoc basis has no legal validity. The Id DRP distinguished the case laws relied upon by the assessee but could not substantiate by the way of any adjudication how the ....
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....paid/ accrued and accordingly, the entire amount along with the TDS is duly reported in the Form 26AS of the Assessee. Thus, the timing of deduction of tax by customers at the time of payment to the assessee is linked to the date of invoicing to such customers and is independent of the assessee's revenue recognition policy. The Assessee offers revenue basis its revenue recognition policy and claims only that proportion of TDS in the return of income as relates to revenue that is being offered to tax. It is submitted that the TDS as appearing in Form 26AS of the subject AY at the time of filing the revised return of income was INR 306,52,58,152 respectively. However, in accordance with provisions of section 199 of the Act read with Rule 37BA of Income Tax Rules, the assessee has claimed TDS of only INR 259,22,42,325 in the revised return of income which is corresponding to revenue offered to tax." 7.3 The AO did not accept the above explanation of the assessee and added a sum of Rs. 472,96,26,920/-. The relevant extract of the order of the AO is reproduced as under: "22. During the course of assessment proceedings it was seen that TDS as per Form 26AS was Rs....
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....nizing revenue proportionately over the course of the contract rather than in the month of billing which is leading to mismatch of the revenue in the return of income. The reply of the Assessee is not acceptable as the Assessee has himself billing in this year. This implies that contract income has already accrued and the contract terms can vary. However, correct computation for income tax assessment also involves due pre-ponement of taxes while the assessee is unduly postponing taxes by reorganizing the revenue over a period of time. In a nutshell, on accrual basis, the entire receipt is to be taken in the period of billing which is the current AY. 24. As income should be declared in the year it accrues, Assessee has failed to show revenue to the tune of Rs 472,96,26,920 (as undisclosed TDS was Rs 47,29,62,692). In view of the above, an addition of Rs 472,96,26,920 is being made." 8. Aggrieved with the said order the assessee filed an appeal before the ld. CIT(A). The Ld. CIT(A) deleted the said addition. The relevant extract of the said order of the Ld. CIT(A) is reproduced as under: "6. round No. 4: Addition on Account of Undisclosed TDS (TDS Mismatch) ....
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....he appellant further demonstrated that the AO's methodology would lead to absurd results and a situation of double taxation, as the deferred revenue is recognized and offered to tax in subsequent years. The appellant also cited judicial precedents that discourage the revenue authorities from litigating on "timing issues" where the rate of tax remains the same, as is the case here. Analysis and Conclusion: The AO's addition on account of the TDS mismatch is a fundamental misinterpretation of both accounting principles and statutory provisions. The AO's contention that the entire receipt should be taxed in the year of billing is a direct rejection of the appellant's regularly employed and statutorily compliant method of accounting under the mercantile system. The AO's position is a clear violation of Section 145 of the Act, which, during the relevant period, permitted the use of the mercantile system and mandated adherence to Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI) unless superseded by notified Income Computation and Disclosure Standards (ICDS) The AO did not make any finding that the appella....
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....evenue relates to contracts for sale of certain products where customers are entitled to software assurance, web support and other benefits, revenue is recognized proportionately over term of contract rather than in the month of billing [Para 2.7, Pg. 100/FPB] Such revenue recognition is in consonance with. Accounting Standard-9 11 For example: If an invoice of 100 was raised on 01.01.2014 under a contract valid for a period of 12 months, revenue to be recognized in the return of income for FY 2013-14 will be Rs. 25 for 3 months Customer will deduct tax on the total amount of invoice i.e Rs. 100 but Respondent-Assessee claims credit only for TDS made on revenue of Rs. 25 and balance TDS credit is carried forward to next year for claim and is reflected as excess credit in Form 26AS For AY 2014-15, Respondent-Assessee in its revised return of income claimed TDS credit of Rs. 259,22,42,325/ in accordance with section 199 of the Act read with rule 37BA of the Income Tax Rules, 1962 whereas the TDS as appearing in Form 26AS was Rs. 306,52,05,017- /resulting in unclaimed TDS which was carried forward (disclosed in return) to subsequent year as the corresponding income was recogn....
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....orresponding proportionate claim of TDS in para no. 11 of its submission as reproduced above as per the provision of Section 199(3) of the Act r.w. Rule 37BA(3)(1) of the IT Rules, 1962. In its submission, it is stated that the assessee in its revised return of income claimed TDS credit of Rs. 259,22,42,325/- in accordance with section 199 of the Act read with rule 37BA of the Income Tax Rules, 1962 whereas the TDS as appearing in Form 26AS was Rs. 306,52,05,017- /resulting in unclaimed TDS which was carried forward (disclosed in return) to subsequent year as the corresponding income was recognized in the subsequent year. We agree with this submission of the assessee as it is the correct position in law. The claim of TDS of Rs. 259,22,42,325/- and the corresponding income therein offered for taxation for A.Y. 2014-15 was also before the Ld. CIT(A), who after analysing the facts and legal position deleted the said addition. No contrary facts or any contrary position of law has been brought on record by the Ld. CIT(DR) to controvert the above findings of the Ld. CIT(A). We, therefore agree with the findings of the Ld. CIT(A). Accordingly, the grounds of appeal filed by the assessee a....
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....conclusion of the appellate proceedings, the income was contingent and not an absolute right to receive. Relying on the "real income theory." the appellant maintained that a notional or hypothetical income, which has not truly accrued, cannot be subjected to tax. Analysis and Conclusion: The addition made by the AO on this ground is in clear contravention of the fundamental principle of the "real income theory" as established by the Hon'ble Supreme Court. Income is said to have accrued only when there is a present, legally enforceable right to receive it. In legal parlance, this is expressed as debitum in praesenti, solvendum in futuro. In this case, since the very basis of the refund the assessment for AY 2012-13-was under appeal, the right to the interest income was not absolute. The income was contingent on the outcome of the pending litigation. The Hon'ble Supreme Court, in the case of Hindustan Housing and land Development Trust Ltd. v. CIT[1986] 27 Taxman 450A (SC), held that income accrues only upon the "final determination" of an amount, and until then, there is no "liability in praesenti." A similar position was taken by the Delhi High Co....
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.... CIT us. Hindustan Housing & Land Development Trust Ltd., [1986) 161 ITR 524 (5C) has unequivocally held that where the right to receive is subject to pending adjudication, no income can be said to accrue. The same principle has been consistently followed by Hon'ble Courts. including CIT. Delhi III vs. Sarvatra Roadrunners (P) Ltd., [2008] 301 (TR 443 (Dell). 17. Further, the factual matrix reinforces that alleged "receipt" itself was illusory, as it is undisputed that refund was not disbursed but merely adjusted against a disputed and pending demand for AY 2009-10. Disputed interest of 154,32,424/- calculated tentatively in favour of Respondent-Assessee pursuant to processing of the tax return under section 143(1) for AY 2012-13 was subsequently reversed in the assessment order passed on 26.12.2017 for such year. Thereafter, Respondent settled the pending litigation for AY 2012-13 under the Vivad Se Vishwas Scheme, 2020 by accepting the income computed in the assessment order Consequently, Form-5, final certificate of closure of litigation, was issued on 27.09.2021. Thus, factually interest of Rs. 254,32,424/- was never received by Respondent-Assessee in relation to A....